Opinions
Brian Madden
Alimentation Couche-Tard
ATD-T
HOLD
Feb 28, 2025
Stock price when the opinion was issued
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Owned since his firm's inception. Great example of a compounder. Huge potential acquisition of 7-Eleven, and he'd prefer it not happen. This will cost much more than previous acquisitions, plus the people in Japan really don't want the deal. An acrimonious dance, and that risk is overhanging the stock. He really does not want them to overpay, wants them to stick to their track record of disciplined capital allocation.
ROC over 20 years is consistently in the 20% range. Wonderful, long-term holding. He added again around $69.
There are concerns it might be too diluted if the acquisition goes through. However the acquisition would be accretive and the 7-11 stores could become more profitable, as well as supplying more food for ATD's stores. It is still an uphill battle and if it doesn't go through it would allow ATD to concentrate more on organic growth.
Didn't care for its bid to acquire Seven & I, so they sold. This could be one deal too many; could indeed be game-changing, but not in the way investors hope. They'd have to issue massive equity, take on massive debt, with integration risks.
If it walked away from the deal, he might be interested again.
Seven & I negotiations are a big overhang. If deal goes through, anti-competition reviews will be required. Plus, would likely need to issue equity to fund it. Integration risk. To conserve cash, company's stopped buying back stock until this gets resolved. US operations are seeing softer traffic, with lower-income consumers spending less.
Low-growth area, so they've grown by acquisition. But now that they're so big, there's nothing left for them to buy. Trades at a discount, but lots of uncertainty on the name.
ATD has a lot of available firepower, and has indicated there are still 'lots' of acquisition opportunities if 7/11 fails. It does get harder to grow as the company gets bigger, but we do not think its M&A run is over yet. We would be comfortable buying this stock if one has a 5-year timeframe. Management has proven itself over and over.
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One of the fantastic Canadian compounders over time. But it will also go through periods where it can go sideways. High rate of return core business, and they're going to take FCF and possibly leverage and get even more of these businesses around the world. Seven & I deal would be great for synergies; if not, also great because they'd just buy their stock back.
Market doesn't know what to do because of all the uncertainty. Consolidating at a long-term moving average. Relatively inexpensive to historical levels. Waiting for the catalyst, but the catalyst isn't happening now. Mild consumer recession in US depending on income level, so its numbers are a bit weak right now. It'll get through this in 1-2 years, still one of his core Canadian holdings.
Japanese are not easy to negotiate with, and it's not to say that they won't come back and try again. Not a management deficiency that the deal wasn't completed. ATD is great at integrating. If they were able to get the deal done, he'd likely be back in the stock. No catalyst in the near term for him to buy; another deal would be a catalyst. In the meantime, doing a great job operating the business.
He's just a bit cautious in general about the consumer as a group relative to the rest of the market. He owns DOL and Loblaw, but that's it.
Had held in portfolios almost consistently since 2000. Dynamic takeover story. Watershed moment for corporate Japan after 2 lost decades. Current management of Seven & I is underperforming. ATD management really wants this takeover, but they would never overpay. There's a deal to be had, and taking over just the NA assets is a possibility.